Credit Card Operations and Calculations
Explore how credit cards work, including billing periods, due dates, grace periods, and formulas for credit card calculations. Learn through practical examples of credit card transactions and how to manage payments efficiently to avoid penalties.
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Presentation Transcript
SECTION 2.5 CREDIT CARDS
HOW DOES A CREDIT CARD WORK? Vocabulary of Credit Cards Billing Period- Oct4-Nov3. (Days of Purchases) Billing Date- Nov 4 (Capital One send a bill for purchase) Due Date- Nov 23 (Pay on all purchases) Grace Period- Nov 5- Nov22 (Mail, Paperwork) 1. 2. 3. 4.
FORMULAS FOR CREDIT CARD CALCULATIONS AND PENALTIES APR: Average Daily Balance=owned amount on a typical day of a billing period= ?????? ?? ???? ?? ? ??????? ?????? 1. ????? ???? ?????? 2. APR=Annual Percent Rate: Interest rate paid on unpaid purchases. Examples: 18%, 22%, 14.74% Finance Charge= Penalty for not paying charges on time =Average Daily Balance ??? 3. 12
EXAMPLE 1 You have a credit card with an APR of 22%. You have paid off all but $1972 of your September balance. Your October billing period runs from October 8 through November 7. You then had the following activities on your credit card for the month of October: You made a charge $530 on October 14 You made a payment of $1,000 on October 15 You made a charge $135.35 on October 21 You made a charge $102.62 on October 31 You made a payment of $800 on November 4 You made a charge $144 on November 5
SOLUTION TO EXAMPLE 1 We make a table summarizing the credit card s activity for the month: Date Purchas e/pay 10/8-10/13 $0 $1972 10/14-10/15 +$530 $2,502 10/16-10/20 -$1000 $1502 Balance NO. of Days 6 2 5 Total =$1972*6=$11,832 =$2502*2=$5004 =$1502*5=$7510 10/21-10/30 +$135.35 $1637.35 10 =$1637.35*10 =$16373.5 =$1739.97*4 =$6939.88 =$939.97*1=$939.97 10/31-11/3 +$102.62 $1739.97 4 11/4 -$800 $939.97 1 11/5-11/7 +$144 $1083.97 3 =$1083.97*3 =$3251.91 $51,851.26 Total 31
EXAMPLE 1 CONTINUED Option 1: Pay the balance $1083.97 to credit card company on due date Option 2: Pay the late fee Based on the table, the total balance over 31 days is $51,851,26, then the average daily balance over October is $51,851,26 31 This amount is a typical day owned to credit card company. Then the finance charge on credit card for the October billing period is $1676.71 0.22 =$1676.17 12=$30.73 penalty
EXAMPLE 2 Bob has a credit card with an APR of 25%. He paid off all but $434 in May. Bob s billing period runs from June 2 through July 1. He then: made a charge $345 on June 3 made a charge $562.30 on June 10 made a charge $54.32 on June 15 made a payment of $100 on June 20 made a charge $562.35 on June 29
SOLUTION TO EXAMPLE 2 We make a table summarizing the credit card s activity for the month: Date Purchas e/pay $0 +$345 +$562.30 Balance NO. of Days 1 7 5 Total 6/2 6/3-6/9 6/10-6/14 $434 $779 $1341.30 =$434*1=$434 =$779*7=$5453 =$1341.30*5 =$6706.50 =$1395.62*5 =$6978.1 =$1295.62*9 =$11660.58 =$1857.97*3 =$5573.91 $36,806.09 6/15-6/19 +$54.32 $1395.62 5 6/20-6/28 -$100.00 $1295.62 9 6/29-7/1 +$562.35 $1857.97 3 Total 30
EXAMPLE 1 CONTINUED Option 1: Pay the balance $1857.97 to credit card company on due date Option 2: Pay the late fee Based on the table, the total balance over 30 days is $36,806.09, then the average daily balance over June is $36,806.09 30 This amount is a typical day owned to credit card company. Then the finance charge on credit card for the June billing period is $1226.87 0.25 =$1226.87 12=$25.56 penalty
